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posted on 31 May 2017

May 2017 Beige Book: Reading Between The Lines - About the Same Rate Of Economic Expanision

Written by Steven Hansen

The consolidated economic report from the 12 Federal Reserve Districts (Beige Book) stated "economies continued to expand at a modest or moderate pace from early April through late May". The previous report stated "the pace of expansion equally split between modest and moderate".

Analyst Opinion of this month's Beige Book

Seems like the rate of growth is unchanged. The Fed is not saying the economy is strong - "modest" is one step above no growth.

Please see the end of this post for words the Federal Reserve uses when the economy is entering a recession. The Beige Book completely missed the 2001 recession, and was late in seeing the Great Recession.

This report is based on information collected on or before 22 May 2017. The summary for this release:

Overall Economic Activity
Most of the twelve Federal Reserve Districts reported that their economies continued to expand at a modest or moderate pace from early April through late May. Boston and Chicago signaled that growth in their Districts had slowed somewhat to a modest pace since the prior Beige Book period, while New York indicated that activity had flattened out. Consumer spending softened with many Districts noting little or no change in nonauto retail sales, while auto sales have edged down from last year's record highs in several Districts; tourism activity has continued to keep pace with the general economy. Meanwhile, the majority of Districts continued to report moderate growth in manufacturing activity and in most nonfinancial service sectors. Construction of new homes and nonresidential structures also continued to grow at modest to moderate rates, as did sales of existing homes; nonresidential leasing picked up a bit. Lending volume trends tended to mirror (and support) the general activity of the economy. Agricultural conditions remained mixed with some regions negatively affected by unusually wet weather. Most energy sectors tended to modestly improve. A majority of Districts reported that firms expressed positive near-term outlooks; however, optimism waned somewhat in a few Districts.

Employment and Wages
Labor markets continued to tighten, with most Districts citing shortages across a broadening range of occupations and regions. Despite supply constraints impeding the ability of firms to attract and retain qualified workers, most Districts reported that employment continued to grow at a modest to moderate pace. Similarly, most firms across the Districts noted little change to the recent trend of modest to moderate wage growth, although many firms reported offering higher wages to attract workers where shortages were most severe. A manufacturing firm in the Chicago District reported attracting better applicants and improving retention for its unskilled workforce by raising wages 10 percent.

On balance, pricing pressures were little changed from the prior report, with most Districts reporting modest increases. Rapidly rising costs for lumber, steel, and other commodities tended to push input costs higher for some manufacturers and the construction sector. In contrast, some Districts noted falling prices for certain final goods, including groceries, apparel, and autos. Energy prices and farm prices were mixed across products and among Districts. Low inventories of for-sale homes were pushing house prices higher in many markets.

Highlights by Federal Reserve District
Overall, economic growth was modest, with only one-half of retail and manufacturing contacts reporting year-over-year gains in revenue. Housing markets were strong despite low inventories. Labor markets remained tight, with employers facing limited supply. Price pressures continued to be modest. The outlook remained positive, with a bit of added caution.

New York
Economic activity has flattened out in recent weeks. Labor markets remained tight, and wages for skilled workers have continued to grow moderately. Input cost pressures have remained fairly widespread, while selling prices have increased at a modest pace. Housing markets have been steady, on balance, while commercial real estate markets have been mixed.

Overall, economic activity continued to rise modestly. The pace of nonresidential construction and existing homes sales ticked up, while nonfinancial services slowed. On balance, employment, wages, and prices continued to grow modestly; however, wage pressures were noted in some regions and for some occupations -- relieved at times by substituting capital for labor.

Business activity generally expanded at a moderate pace. Labor markets tightened, with employers looking to enhance benefits packages as a means of employee retention. Single-family home sales picked up after slowing early in the first quarter. Motor vehicle production was down slightly, while orders for heavy equipment rose. Businesses reported increasing selling prices more frequently due to rising input costs.

Economic activity expanded modestly across a wide array of industries, and firms continued to add workers to their payrolls. However, labor shortages persisted in most areas, keeping upward pressure on wages, while hindering growth in some industries. The hard-hit coal industry was recently buoyed by supply constraints in Australia, where adverse weather temporarily idled coal production facilities.

Economic activity modestly improved. The labor market remained tight. Firms noted use of training programs to attract and retain workers. An uptick in wage growth was reported for high-demand positions. Retail sales were soft, however, sales of trucks and large vehicles remained solid. Manufacturers noted increases in new orders and production.

Growth slowed to a modest pace. Employment, business spending, and manufacturing production grew at a moderate rate, while construction and real estate grew modestly and consumer spending decreased slightly. Prices rose modestly. Conditions were little changed in the financial and agricultural sectors.

St. Louis
Economic activity has continued to increase at a modest pace, and contacts continue to hold a generally optimistic outlook for overall activity for the remainder of 2017. Reports from auto dealers, however, indicate slowing sales since our previous report; they expect this downward trend to continue into the third quarter.

Economic activity grew modestly. The professional services, residential construction, manufacturing, energy, and mining sectors saw growth, while commercial and residential real estate activity declined slightly. Commercial construction increased in some regions but was flat in others and slower in segments outside of multifamily building. Employment and wages both saw moderate growth.

Kansas City
Economic activity increased moderately. Manufacturing and real estate activity expanded at a moderate pace, and energy activity continued to increase modestly. Consumer spending rose at a modest pace, with a strong outlook for future growth. Agricultural conditions remained generally weak due to subdued farm income and continued low commodity prices.

Economic activity grew moderately, and outlooks remained positive. Retail sales accelerated slightly, despite some softness in auto sales. The energy sector saw further improvement, partly supporting output growth in manufacturing. Home sales continued to trend upward, but there was continued softness at the higher end. Nonfinancial services activity expanded and loan demand increased.

San Francisco
Economic activity continued to expand at a moderate pace. Overall, price inflation was steady. The labor market tightened further, and wage pressures grew moderately. Sales of retail goods grew modestly, and growth in the consumer and business services sectors remained strong. Manufacturing activity picked up to a modest pace. Activity in the real estate sector remained strong. Lending activity grew moderately.

Fed's Words When Economy is entering a Recession

For the recession starting December 2007, here is the lead up summary words from the Beige Books:

  • 28Nov2007 - "expanding"
  • 16Jan2008 - "increasing moderately"
  • 05Mar2008 - "growth slowed"
  • 16Apr2008 - "weakened"

For the March 2001 recession which ended in November 2001, here are the Beige Book summary words:

  • 17Jan2001 - "economic growth slowed"
  • 07Mar2001 - "sluggish to modest economic growth"
  • 02May2001 - "slow pace of economic activity"
  • 13Jun2001 - "little changed or decelerating"
  • 08Aug2001 - "slow growth or lateral movement"
  • 19Sep2001 - "sluggish"
  • 24Oct2001 - "weak economic activity"
  • 28Nov2001 - "remained soft"
  • 16Jan2002 - "remained weak"

Source: Federal Reserve

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